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Frontiers in Finance and Economics is a UGC APPROVED International Journal of Research

Marginal Conditional Stochastic Dominance between Value and Growth

  1. Victor Chow, Bih-Shuang Huang, Ou Hu
Marginal Conditional Stochastic Dominance (MCSD) is an extension of the second order stochastic dominance that considers the joint nature of return distributions. It is a useful tool for examining marginal dominance of one asset to another conditionally to a given market return distribution for all risk-averse investors.  MCSD is superior to conventional market models in that it requires no modeling specification and is distributional free.  Although the size and value effect of equity portfolio performance has been well documented, most of analysis relies on statistical regression description and/or linear factor models.  This manuscript applies MCSD to re-exanimate the size/value effects for international equity markets.  The empirical MCSD test reveals that U.S. value stocks outperformed the market and dominated growth stocks for the post 1975 period.  However, the phenomenon of value over growth is generally insignificant in markets around the world, and it varies with different valuation criteria.
Keywords:  Value, Size, Stochastic Dominance, and Portfolio Selection.
JEL Classification:  G11, G14
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Frontiers in Finance and Economics

FRONTIERS IN FINANCE AND ECONOMICS with ISSN no. 1814-2044 Multi-Disciplinary Journal of Economic, Finance and Business and Management Sciences. Frontiers of Finance and Economics, a bi-Annual UGC Approved Journal. Send papers for publication to editor@ffejournal.org

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